General:

Overall performance of students was disappointing. Scripts betrayed lack of practice and ignorance of International Accounting Standards. Many examinees were not well conversant with annual reports of listed companies and banking companies – as evidenced by answers to questions # 1 and 6. It seems that majority of the students resort to selective studies.

Question-wise comments:

Q.1

This was the worst attempted question with an average score of 4 out of 20 marks and only 6% students scored passing marks. Common mistakes in the answers were:

• Proper columnar-wise format of ‘Statement of Changes in Equity’ was not drawn up. Most students showed all adjustments under two vertical columns (2003 and 2004).

• Very few students worked out the restated balance of various heads of equity as at 1.1.2003.

• Impairment losses were not properly calculated. Impact of tax on impairment losses was ignored.

• Notes for changes in accounting policy were omitted by most students.

Q.2

This was a question on group accounts which often features in this paper. Yet only 35% could obtain pass marks. Many students worked out the minority interest in Jamal Limited as 90% instead of 87% and could not calculate opening retained earnings.

Q.3

(a)

Students gave general explanation of contingent assets and liabilities and could not correctly describe the concepts/situations referred to in IAS 37.

(b)

Students did not give proper reasons/bases for providing/not providing for various events and the amounts to be provided. It is advised that they should read IAS 37 and its appendices over and over again to be able to grasp the finer points/details of the topic.

Q.4

(a)

It was an easy and straightforward question. This was well attempted with many students scoring high marks.

(b)

Here most students correctly answered that financial instruments and other contracts are considered as potential ordinary shares but hardly anyone discussed, that for calculating earnings per share, such assumption will be valid only if the effect of the inclusion of potential ordinary shares is dilutive. Also hardly any student mentioned the difference between the issuers and holders’ options in calculating the dilution effects.

Q.5

Comprised of 3 parts of 5 marks each and was the second worst attempted question.

(a)

Was based on SIC 15 relating to operating leases – incentives. Many students obtained full marks having read the SIC. Others having skipped this SIC in their preparations could not score any mark.

(b)

This part was related to discontinue operations. Very few students knew about the relevant disclosure requirements.

(c)

This part required students to discuss the implication of change in accounting policy in interim financial reporting requirements. The answer is contained in para 43 of IAS 34 under the heading ‘Restatement of previously reported interim periods’.  Very few students managed to produce an appropriate answer.

Q.6

Students lacked the knowledge of disclosure requirements of banks and just reproduced the information given in the question. For those who knew about the requirement, it proved to be an extremely easy question. It was another case of poor performance due to selective study by the students.

Q.7

(a)

Here again, the students were not sure of the requirements of para 67 of IAS14.

(b)

It was again a very easy and straightforward question and was answered well by the students.